What are credit repair services -- and are they worth the money?
All the pros and cons of paying someone to fix your credit.
Should you pay a company to fix your credit?
Blemishes on your credit report, including late and missed payments, are no joke. They have a direct impact on your credit score, which can be the deciding factor as to whether you're approved for a new credit card, as well as how much you'll pay for insurance and your mortgage. Bottom line: If you've got problems or errors on your credit report, you need to resolve them as soon as possible.
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But you don't have to go it alone. There are professional repair services available, and some of them can help resuscitate your credit. We've got everything you need to know about what a credit repair service can and can't do, and what to watch out for when you're choosing one.
What do credit repair services do?
The first step is credit counseling -- helping you understand and analyze your credit score. (A 2018 survey by the American Institute of CPAs found that a third of Americans never check their credit report.) If your score is low, a credit repair service will explain why and provide tactical guidance on how to improve it.
The second function is more practical: filing disputes on your behalf to correct any errors the service finds on your credit report. According to Howard Dvorkin, a CPA and chairman of Debt.com, one in five reports has an error in it. Potential errors include simple mix-ups due to mistaken identity; accounts reported improperly by a creditor; or in some cases, fraud related to stolen identity.
Of course, you can file a dispute with a credit agency directly. But it can be a painstaking, laborious process. When you hire a credit repair company, it agrees to handle the dispute for you.
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What is a credit report dispute?
Let's say you find a mistake on your credit report -- a credit card opened in your name for which you didn't apply. Equifax, Experian and TransUnion, the three credit reporting agencies, have a process to let individuals dispute the information on the credit report. You can initiate this process here:
Once you initiate a dispute, the company will launch an investigation. The agency with the alleged incorrect info will then notify the creditor, who's required to provide proof supporting the claim within 45 days. At that point, it's up to the agency to remove the transaction or leave it on there.
If your dispute is at first denied, there's an escalation process. This typically requires you to send in documentation, like a receipt or canceled check, to prove the report has an error.
You can also take up your case with creditors themselves. Companies can adjust information they've previously reported. But it may be difficult to convince them to do it.
How much do they charge?
The prices vary widely, starting at around $70 per month. The more reputable companies, such as Sky Blue Credit and Ovation Credit Repair, may charge as much as $120 per month with upfront setup fees of $80 to $90.
At a minimum, these companies will manage your disputes and provide counseling. More expensive services will take on more complicated issues, such as repossessions, bankruptcies and other legal matters. Most disputes take at least two months to resolve, but some can stretch on for far longer.
Further complicating matters, credit repair services can't guarantee that they'll successfully resolve your issues or repair your credit. They'll do the legwork for you, but they keep their money whether they fix things or not.
Keep in mind, what you're paying for is outsourcing all the paperwork. If you just need someone to break down your credit report, there are plenty of free and lower-cost options available. Check with your bank to see if it offers counseling, or get in touch with a nonprofit such as American Consumer Credit Counseling, Money Management International or InCharge Solutions.
Be wary of scams
Not all credit repair services are reputable, and some are outright scams. According to the Consumer Financial Protection Bureau, some red flags include large upfront fees, guarantees, and a lack of transparency. As with any company, it's worthwhile to check the customer reviews before you sign up.
"Credit repair companies with an A+ Better Business Bureau rating and verified online reviews usually have a track record of successfully disputing errors with any of the three credit reporting agencies," Dvorkin said.
A bit of research on Google can make the difference between getting your credit back on track or getting fleeced for hundreds of dollars.
The verdict: Are credit services worth the money?
Time, cost and complexity will determine whether it's worth your while to hire a credit repair service or take on a dispute yourself. If you've already identified one or two issues on your report, such as an account with an inaccurate balance or incorrect personal info, it may be manageable to fix those on your own. If your credit report is riddled with errors due to unforeseen circumstances like identity theft and you simply don't have the time to spend fixing it, then you may want to consider seeking out a credit repair service.
"There can be a lot of red tape involved with disputing a credit report on your own, and these companies know exactly what the credit bureaus want to see in a request for investigation," Dvorkin said.
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